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Special Investigating Unit, Transnet join forces to sue Nedbank for R10.5bn

Special Investigating Unit, Transnet join forces to sue Nedbank for R10.5bn
Ray Mahlaka
By Ray Mahlaka
18 Aug 2024
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They have accused the bank of carrying out financial transactions that were allegedly corrupt.

Nedbank faces a po­tential repayment to Trans­­net of R10.5-billion relating to the commercial bank’s role in executing questionable financial trans­actions on behalf of the state-owned entity (SOE) during the destructive State Capture years.

The Special Investigating Unit (SIU) and Transnet have joined forces to sue Nedbank at the High Court in Johannesburg, accusing the commercial bank of carrying out financial transactions that were allegedly corrupt and cost the SOE billions of rands in losses.

In court papers obtained by Daily Maverick, the SIU and Transnet have asked the court to set aside a series of financial transactions, known as interest rate swaps, and declare them void and unenforceable under the Public Finance Management Act (PFMA).

The SIU and Transnet want the court to set aside all the interest rate swap transactions, which were executed between December 2015 and March 2016, which will then pave the way for Nedbank to “be liable to repay the full amount” plus any further payments made to the bank after May 2024. The SIU and Transnet have estimated that the full amount is “R10,542,946,414.80” or R10.5-billion.

This equates to about 61% of profits that Nedbank generated in 2023 (R17.34-billion), and could arguably affect the bank’s financial sustainability.

Genesis of interest rate swap transactions


In these interest rate swap transactions, Nedbank was essentially involved in restructuring the interest on the debt that Transnet used to fund its freight rail and port operations, and the bank received fees for doing so. From 2011, Transnet approached a consortium of lenders (including Nedbank, China Development Bank, Absa and others) for a loan facility of about R12-billion to fund the modernisation of its fleet of locomotives. On 1 December 2015, Transnet secured the loan, with a 15-year repayment term, and procured 1,064 locomotives from Chinese manufacturers, mainly China South Rail and China North Rail.

Read more: Transnet and SIU ask high court to cancel 1,064 locomotive contracts, scene of the Guptas’ greatest heist

Nedbank’s role in the interest rate swaps at Transnet is detailed in the State Capture Commission reports, which also examined the bank’s relationship with Regiments Capital, a financial services firm that was linked to the Gupta family.

Transnet needed help to negotiate the terms of the R12-billion loan and associated interest rates, as the portion from China Development Bank was in US dollars and any volatile fluctuations in the rand exchange rate would make the loan more expensive.

In about August 2014, Anoj Singh, the Transnet group CFO at the time, pushed for the SOE to appoint Regiments as an adviser to manage the R12-billion loan and the interest rates associated with it. Singh sidestepped Transnet’s internal treasury team, which would normally be responsible for managing the company’s money, debt and financial risks.

Regiments also needed outside help to restructure the interest on the R12-billion loan, so it approached Nedbank for help on 4 December 2015. To restructure the interest rate, Regiments executed an interest rate swap arrangement between Transnet and Nedbank.

At a basic level, an interest rate swap happens when two parties agree to swap the kind of interest rate they pay on loans, which would include swapping a floating/variable interest rate for a fixed one. Swaps are essentially a gamble on what interest rates will be in the future. During an interest rate rising cycle, fixing an interest rate could make a loan and interest payments cheaper. But down the line, fixing interest rates (especially below-market interest rates) costs more.

More court demands by SIU, Transnet


The SIU and Transnet have asked the court for an alternative remedy if the interest rate swaps are not set aside for allegedly contravening the PFMA. Both entities still want the court to set aside the interest rate swap transactions on constitutional or policy grounds because they allegedly had “no sound commercial rationale” and were concluded in “furtherance of the illicit State Capture project”. If the court application is granted on this basis, Nedbank will still be on the hook for repayment to Transnet, but will face a much lower liability.

Nedbank would be required to repay an amount that is equal to the difference between what it received from Transnet when the interest rate swaps were executed from December 2015 and the date on which the swaps would be possibly set aside by the court. In this scenario, Nedbank would be required to repay the amount of profits it allegedly made from the financial transactions, which the SIU and Transnet estimate to be R2.736-billion.

Nedbank previously responded to the announcement by Transnet and the SIU on 26 July 2024 about the court action, with the bank denying any wrongdoing. Nedbank said it would “strongly defend the litigation against it and will pursue its counterclaims against Transnet and others.

“To date, no evidence has been found, or presented to Nedbank, of any Nedbank staff dishonesty, corruption or collusion,” a statement from the bank said.

However, the SIU and Transnet suggest in their court papers that Nedbank’s head of balance sheet management, Moss Brickman, who “played a pivotal role” in the interest rate swap transactions, had a “long-standing relationship” with Eric Wood, who headed Regiments. The SIU and Transnet said Brickman was in regular communication with Wood about the bank’s participation in the R12-billion loan facility, and the pair even negotiated the terms of the various interest rate swap transactions.

Read more: How the Guptas’ R9bn locomotive heist went down

In court papers, the SIU and Transnet have included, as evidence, email exchanges between Brickman and Phetolo Ramosebudi, the SOE’s then head of treasury, indicating that the pair allegedly colluded to design the terms of the 2016 interest rate swaps. The emails indicate that Brickman and Ramosebudi were in regular communication to redesign the terms of the swaps when Nedbank initially flagged them as “large and unusual transactions”. Eventually, the swaps were approved by the bank and Transnet.

The SIU and Transnet have also questioned ­Nedbank’s decision and due diligence process to get into business with Regiments when there were heightened media reports implicating the firm in high-level corruption and money laundering to benefit the Guptas.

Nedbank’s response


Nedbank has, instead, laid wrongdoing at the doors of Regiments and Transnet. It said: “To the extent that there was corruption, this was on the part of the Regiments Group and Transnet’s staff members and not Nedbank. Nedbank will not be held liable for any governance failures at Transnet.

“Considering internal and independent external reviews commissioned by them, the Nedbank Board and management remain satisfied that Nedbank internal governance procedures were followed in respect of these swaps and that there is no evidence of any Nedbank staff dishonesty, corruption or collusion.”

Nedbank also denied the claim by Transnet and the SIU that the bank made a profit of more than R2.7-billion. “The sales margin earned by Nedbank in respect of the swaps was market related and amounted to less than R43-million. The swaps were commercially sound and the return on equity earned by Nedbank was fair, reasonable and appropriate at 15.5% over the life of the transactions,” the bank said. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

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